3.Industrial Light currently has:

§ Free cash flow to equity = $4.0 million.

§ Cost of equity = 12 percent.

§ Weighted average cost of capital = 10 percent.

§ Total debt = $30.0 million.

§ Long-term expected growth rate = 5 percent. 

What is the value of equity?

A)   $27,142,857.

B)   $57,142,857.

C)   $60,000,000.

D)   $44,440,000.

4.The following information was collected from the financial statements of Bankers Industrial Corp. for the year ended December 31, 2000.

§ EBIT = $6 million.

§ Capital expenditures = $1.25 million.

§ Depreciation expense = $0.63 million.

§ Working capital additions = $.59 million.

§ Cost of debt = 10.5 percent.

§ Cost of equity = 16 percent.

§ Growth rate = 7 percent.

Bankers is currently operating at their target debt ratio of 40 percent. The firm’s tax rate is 40 percent.

The FCFF for the current year is:

A)   $2.31 million.

B)   $3.57 million.

C)   $4.89 million.

D)   $2.39 million.

5.The appropriate discount rate used in valuing Bankers using FCFF will be:

A)   12.12%.

B)   6.30%.

C)   10.50%.

D)   16.00%.

答案和详解如下：

3.Industrial Light currently has:

§ Free cash flow to equity = $4.0 million.

§ Cost of equity = 12 percent.

§ Weighted average cost of capital = 10 percent.

§ Total debt = $30.0 million.

§ Long-term expected growth rate = 5 percent. 

What is the value of equity?

A)   $27,142,857.

B)   $57,142,857.

C)   $60,000,000.

D)   $44,440,000.

The correct answer was C)

The value of equity is [[($4,000,000)(1.05)]/(0.12 – 0.05)] = $60,000,000.

4.The following information was collected from the financial statements of Bankers Industrial Corp. for the year ended December 31, 2000.

§ EBIT = $6 million.

§ Capital expenditures = $1.25 million.

§ Depreciation expense = $0.63 million.

§ Working capital additions = $.59 million.

§ Cost of debt = 10.5 percent.

§ Cost of equity = 16 percent.

§ Growth rate = 7 percent.

Bankers is currently operating at their target debt ratio of 40 percent. The firm’s tax rate is 40 percent.

The FCFF for the current year is:

A)   $2.31 million.

B)   $3.57 million.

C)   $4.89 million.

D)   $2.39 million.

The correct answer was D)

The FCFF for the current year is $2.39m = [$6.0m(1 - 0.40)] + $0.63m - $1.25m - $0.59m.

5.The appropriate discount rate used in valuing Bankers using FCFF will be:

A)   12.12%.

B)   6.30%.

C)   10.50%.

D)   16.00%.

The correct answer was A)

The appropriate discount rate to be used is the weighted average cost of capital (WACC), and this is 12.12% = (0.60 * 0.16) + (0.40 * 0.105 * [1 - 0.40]).